Credit vs Debit: Which one is Better?

By ccflyers on August 20, 2007

People often debate the advantages that a debit card has over a credit card and vice versa. The truth is that a debit card has its own set of advantages and disadvantages and so do credit cards. Depending on how you shop, spend your money, and generally use your bank account either a credit card or debit card can be beneficial to you. The biggest difference between a credit card and a debit card is that a debit card is your own money, you are not going to be charged any interest on using the debit card, and any purchase you make is free from any instalments or further fees.  Whereas in the case of a credit card you are borrowing money from the bank, you will end up paying a transaction fees and also APR if you decide to equate the purchase across a few months.

So far the debit card might look better, but a credit card has a big advantage over a debit card. A credit card can give you access to cash you might not have or may require in an emergency. Since a debit card is linked to your bank account you can only spend as much as you have in your bank account. In fact the biggest reason to get a credit card is because you might need cash in a hurry or you might want to make a purchase that you can pay for after you get the funds for it.

In essence a debit card is simpler to use, however this also means that once stolen a debit card can be used by anyone without any identification proof. In fact this is the biggest disadvantage of a debit card, if you fail to report your debit card stolen after 2 days the maximum liability increases to $500 (and in the rare case that you do not report it stolen in 60 days your liability can be up to 100% of your bank account). Compare the liability of a credit card (limited to a maximum of $50) to a debit card the first thing you will notice is that you stand to loose a lot more if your debit card is stolen.

A person can actually clean out your bank account in one go using a debit card, however this is not possible using a credit card as the moment a person tries to go on a shopping spree the credit card company will call you up. So even if you don’t know your card is stolen you are sure to find out. However there are higher fees associated with maintaining and using a credit card. In fact most debit cards today come with zero transaction fees and a very low annual charge.

Additionally there is no way you can overdraw on your debit card, since you can only spend as much money as you have in the bank. Debit cards are one of the most effective ways to manage your bank account and also your finances. A common problem most people have is that they overspend using their credit card and only when they get the credit card statement do they realize how much they have spent, however with a debit card a quick visit to the ATM can be sufficient determent.

On a whole both credit and debit cards have their own set of unique advantages and disadvantages. If you are looking to get a greater hold on your finances then a debit card is the best option. However if you frequently find your self wanting for cash at the end of the month, and want to use a card that can allow you to access more avenues in terms of payment options then a credit card is a must.

In fact online transactions are almost exclusively limited to credit cards and unless a site has a tie up with your bank, the only way to buy stuff online is through your credit card. A credit card should be used for meeting emergency expenses and also for buying things that you might otherwise not be able to buy. Ideally to meet all your day to day expenses a debit card should be used as a primary option in conjunction with a good credit card.

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